Asymmetrical Information

Not to mention that, for labor intensive work, a higher minimum wage would presumably add to the pressure of importing from or moving factories to low wage countries.

The benefit to society from minimum wage jobs is to train young workers in work skills. Going from goofing off to having to concentrate, focus and work for 8 hours is a huge transition. Minimum wage jobs allow workers to make mistakes and learn without wrecking their career.

A machine can do every non-skilled job in America. If the cost of a human surpasses the cost of a machine, a machine is brought into replace the human. Raising minimum wage automates jobs out of existence and reduces training opportunities for our youth.

Fantastic post, Ms. McArdle. I might add, though, that traditionally, unions backed minimum wage increases because they earned well ABOVE the minimum wage rate. Why would they do that? Because production techniques are flexible. Companies can employ a few skilled workers using complex equipment. They can also employ more semi-skilled workers using simpler equipment. Or, they can hire a lot of unskilled workers using very simple equipment. Increases in the minimum wage rates tends to shift corporate preferences from the labor intensive to the capital intensive. While this results in a net overall loss in labor demand, the skilled segment of the labor force can actually see an increase in labor demand.

Runaway pay for CEOs most certainly does have adverse effects on other employees. However, it is much easier to demonstrate the redistributive effects. Given a weak corporate governance structure CEOs can, and often do, play a game against every other employee.

It is easy enough to lower a companys healthcare costs, for example, by increasing the co-payments. But need the company's profts go up? Nope. Straight into the pockets of the fellows in the executive suite. This is the real nickel and dime story that's being played out in America.

A stronger corporate governance structure would reduce the incentives for CEOs to play such destructive games. The question should be why shareholders and employees have been unable to achieve such a governance structure.

One problem with the "raising the minimum wage would destroy jobs" thing: the real dollar value of the minimum wage is right where back where it was in 1955.

Was mass low-wage unemployment a feature of the 1960s? After all, the real dollar value of the minimum wage jumped about 50% or so in that decade.

[ A machine can do every non-skilled job in America. If the cost of a human surpasses the cost of a machine, a machine is brought into replace the human. Raising minimum wage automates jobs out of existence and reduces training opportunities for our youth. ]

But are jobs a machine can do worth training humans for? I think not. Yours is a confused, Ludd argument.

Getting back to the issue of excessive pay for the big bosses: refined sensibilities such as Jane Galt's may find big $$$ for CEO's "undoubtedly repulsive." However, Ms. Galt misses the point that some free free free enterprisers will continue to find nothing wrong with the boss class earning very big $$$ as long as the economic disutility of extra big pay for big chiefs is not proven.

Just because guys such as Dickey Grasso of the NYSE don't smell OK to gentlefolk such as our Ms. Galt-- that's insufficient.

[ The excessive CEO pay encouraged by the free-for-all atmosphere of the 90's was undoubtedly repulsive. But it isn't analogous to the minimum wage, and we needn't worry that we'll find hordes of hungry investment bankers on our street, trying to make the rent on the yacht.]

But in many ways the investment bankers ARE on our financial Main Street, trying to make the payments on their yachts by means whcih are at least as dubious as aggressive panhandling.

Consider, for example, Merril Lynch's recent legal troubles, or the Canary mutual fund scam.

[ Not to mention that, for labor intensive work, a higher minimum wage would presumably add to the pressure of importing from or moving factories to low wage countries.]

Couldn't that be used as an argument for restoring slavery in cotton-growing and textile mill parts of the US?

Whoops, that's Merrill Lynch.

Wouldn't it be better to get rid of the minimum wage laws altogether, and expand the earned income tax credit? This takes the direct burden from the employer and encourages folks to leave welfare and take entry level jobs... training wheels for work. Why is this a bad idea? Am I missing something?

David, no, for two reasons. First you've confused voluntary with involuntary transactions; saying that the government shouldn't be able to, say, prevent me from occupying a cheap hotel room by setting a price floor is not the same thing as saying that I should be able to break into people's homes and hold them hostage in order to secure cheap lodgings. And second, we have automated pickers now, which would make slavery uneconomical even if it were legal.

Very nice Megan. I'm surprised the comments section isn't hopping with liberals claiming that higher minimum wage leads to economic growth, or some nonsense like that.

When I was in the 8th grade I had to give a speech on a controversial topic, and I chose minimum wage. I set out to talk about why it should be raised, and in the course of my research I found out about price floors, inflation, and the fact that most people at that pay rate are teenagers, retirees, and part-timers. Very few people support a family on minimum wage. Needless to say I changed my speech...

"And second, we have automated pickers now, which would make slavery uneconomical even if it were legal."

I wouldn't be so sure about that; apparently the only thing holding off mechanization of the various California fruits and vegatable fields is access to sub-minimum wage immigrant labor. That's what Schlosser's new book says, anyway.

"Very few people support a family on minimum wage."

Google doesn't agree.....

Fruit pickers are still efficient because they don't damage the appearance or texture of the produce the way a machine can. I can't think of a single crop destined for processing which is still picked by hand, even at very, very low wages. Remember, slaves aren't free: they have to be given food, shelter and clothing, even if substandard; they have a substantial capital cost; and they require an extensive supervisory network dedicated to keeping them working without running away.

Jason, please provide links. 53% of people making minimum wage are under the age of 18, and the median family income for non-teenage minimum wage earners is $38,500. I believe 7% or fewer of minimum wage earners are attempting to support themselves, much less a family, on what they earn at a minimum wage job.

Jane, that's what I thought on fruit, but Schlosser disagrees, and he's spent more time on it than me.

EPI has some minimum wage stuff. I don't see how you can get "half of minimum wage workers are under 18" out of this, for one.

"A machine can do every non-skilled job in America. If the cost of a human surpasses the cost of a machine, a machine is brought into replace the human."

This is manifestly not true, or so many businesses wouldn't be employing cheap immigrant labor.

Lugo - Just because something can be done by machine, it does not follow that it is cheaper to do so. A smart business person will use the mixture of labor and automation that does the job the best for the least money. Machines are expensive to buy, install, and maintain. (Labor is also more flexible - you can fire a worker. You still have to pay for a machine whether it is producing or not.) As labor rates rise, machines, by comparison, become cheaper.

So why do so many businesses employ cheap Immigrant labor? Because it's cheap compared to machines. Raise the wage (so that the labor is no longer cheap) and more things will be done by machine -- or not done at all.

My wife is a shift manager at a local McDonald's. She thinks the minimum wage is terrible. Here in Oregon we have an ill conceived law that indexed the minimum wage to inflation. She groans every year in September when the new wage is announced. It means two things. One: the prices are all going to be increased sometime in October or November to make up for it. Two: the number of people working will be cut. Right now there are periods where there are just managers on the floor, they are salaried and have to work whatever hours they're told.

She has worked there for fourteen years and is no great fan of the minimum wage. They hire mostly teenagers for the hours after school, but have to hire adults to fill the daytime hours. If you have a good worker, they end up getting promoted or get a better job, then she has to train someone new. The ones that stay are the people that have problems showing up for work, getting up on time, that are difficult to work with or between jail sentences.

The teenagers show up and want to stand around talking to each other instead of working.

Luckily, my wife would have made a top-notch First Sergeant and will not abide any nonsense. They do it her way or they do it elsewhere. Good training for both the teenagers and the terminally lazy.

What do you think of this indexed minimum wage, Jane? I would be curious to hear your take on it. You being educated and all. I know what I think. (It's stupid.) but I'm just some poor schmuck

If places like McDonalds have to keep some incompetent workers, then McDonalds ain't paying enough. I don't see how a legally mandated minimum wage is harming McDonalds.

Maybe McDonalds just doesn't have sufficient customer demand to raise profits so as to increase profitability so as to pay enough to hire dependable workers.

Inference: maybe McDonalds ought to go out of biz.
Real capitalism means that some businesses will go OOB.

If low wages were the cure for all economic ills, then why isn't everything groovy in the 3td World?

[.... She has worked there for fourteen years and is no great fan of the minimum wage. They hire mostly teenagers for the hours after school, but have to hire adults to fill the daytime hours. If you have a good worker, they end up getting promoted or get a better job, then she has to train someone new. The ones that stay are the people that have problems showing up for work, getting up on time, that are difficult to work with or between jail sentences. ... ]

A return to slavery would cure Mcdonalds probelm with slacker workers! "Difficult to work with?" Flog 'em!

[ David, no, for two reasons. First you've confused voluntary with involuntary transactions; saying that the government shouldn't be able to, say, prevent me from occupying a cheap hotel room by setting a price floor is not the same thing as saying that I should be able to break into people's homes and hold them hostage in order to secure cheap lodgings. ... ]

In regard to the mutual funds industry in the US: participation is not all that voluntary. People at a lot of firms who want to be in their company's defined contribution retirement plan have to mutual funds from among a finite, rather short list of mutal fund firms. If its a traditional defined benfit retirement paln, workers may not have much say-so at all about who's handling their retirement investments.

As an NYC financial journalist with a paying job, you have to cheerlead for Wall Street, eh, Ms. Galt? Make like Maria or one of the other money babes on CNBC.

[ ... My wife is a shift manager at a local McDonald's. She thinks the minimum wage is terrible. ...

She has worked there for fourteen years and is no great fan of the minimum wage. ]

Why is your wife stil working at MacDonald's after fourteen years if she's so diligent? Because she loves the atmosphere and the fine food?

[ David, no, for two reasons. First you've confused voluntary with involuntary transactions; saying that the government shouldn't be able to, say, prevent me from occupying a cheap hotel room by setting a price floor is not the same thing as saying that I should be able to break into people's homes and hold them hostage in order to secure cheap lodgings. ]

If that's a reference to strict-sense slavery, I believe that Karl Marx hisself wisecracked that wage slavery in the industrial North wasn't much better than outright slavery under a beign Master in the Old South. Slaves in the Olde South had a retirment plan and they were free from fear of unemployment.

.....

Another point: You say, "the same thing as saying that I should be able to break into people's homes and hold them hostage in order to secure cheap lodgings. ... "

But that's the way I view MacDonald's and other junky, dingbat roadside businesses! In the absence of strict local zoning laws, firms such as MacDonalds will break into my community and hold me and my family hostage to visually hideous roadside nuisances which serve malnourishing food and bring in to my heretorfore upscale community illegal immigrants and other riff-raff employees.

In short, sinkholess such as MacDonald's fit the legal definition of an attractive nuisance. If Macdonals'd can't operate in my ZIP code because the local minimum wage is too high, well, that's the idea.

To repeat: the average middle American who is not a professional trader is not really free to avoid crooked stock market firms such as Merrill Lynch,nor is a Middle American free from having a big corporation HQ'ed in NYC or some other faraway place impose roadside blight, such as a MacDonald's, on his or her local community ... at least in the absence of countervailing political and economic power.

"To repeat: the average middle American who is not a professional trader is not really free to avoid crooked stock market firms such as Merrill Lynch"

And whose dumb idea was it for American workers to be "given" pension plans by their employers or by their government?

"nor is a Middle American free from having a big corporation HQ'ed in NYC or some other faraway place impose roadside blight, such as a MacDonald's, on his or her local community"

Good. I'd rather have my local community's restaurants out in the open where I can see them, instead of having to go on a scavenger hunt when I want to eat out. And I'd certainly be opposed to having my local community's restaurants be driven away entirely.

Same goes for other places of business. I'd love to know who came up with the idea that places of business were "ugly" and needed to be (a) placed far away from the homes of people who would like to patronize them and (b) hidden from them to boot.

"If places like McDonalds have to keep some incompetent workers, then McDonalds ain't paying enough. I don't see how a legally mandated minimum wage is harming McDonalds.

Maybe McDonalds just doesn't have sufficient customer demand to raise profits so as to increase profitability so as to pay enough to hire dependable workers. "

Or maybe McDonalds can actually make use of "incompetent" workers that are useless elsewhere? Is it a bad thing that they have jobs?

I have a deeply held religious belief, & since I'm sure that Ses. Chuckie would agree with it, he should let me have it, that the minimum wage should be 1/5 the average wage of CEOs! Why stop at $10 when you're dreaming & don't understand Econ 101?

I also think that if a CEO gets a limo, then 5 minimum wage earners should together also get a limo.

I also won't support higher hamburger prices at McD's How dare they raise 'em; I'm just a little guy!

Switching gears slightly, the pay of corporate CEOs is generally said to be "competitive", based on data from some orgs which do such surveys, & their outre pay is justified lest they "go somewhere else" at higher pay. I figure that most CEOs have as much chance of getting the head job at more pay at another corp as the minimum-wage guy at McD's has at getting his same job at higher pay at another burger joint! (Well, Dick Grasso's job is open!) In any event, each CEO's pay becomes a benchmark for other corps, of course, & the law of perpetual motion really works here.

Two cheers for capitalism.

Why is your wife still working at MacDonald's after fourteen years if she's so diligent? Because she loves the atmosphere and the fine food?

She works there because she is an immigrant that does not read and write English very well. She has had maybe three years of education (of any kind) in her entire life. Nonetheless she can make do in two languages. I'm sure that if she had an opportunity to gain an education thirty years ago some of the people reading this would be working for her now.

She was raised in real poverty, not the gold-plated version that we have in the United States. She finds the complaints from the American poor mostly disingenuous, and laughs at the complaints that the schools are not good enough. Where she was raised the school was a chalkboard under a lean to and the children sat on the ground. She was denied even that except when the local school teacher forced her parents to let her attend. That ended when the teacher left.

She works to earn money for her Bingo and shopping and not to live, I earn about $60K which is enough to handle our living expenses.

She enjoys her work, but is amazed with the whining by her co-workers about how hard things are. They make stupid decisions and then expect someone else to bail them out. Most are on some type of government assistance and are content to sit on their ass and wait for their entitlement rather than make an effort to better themselves. The ones that do work hard move on to better jobs and are replaced by more losers.

The comment about flogging is an excellent idea. I'm sure she would be more than happy to implement it. As it is, she trains them and makes them work. If they don't, they can seek employment elsewhere, as it should be.

A job is an exchange of labor for money. If you accept the job for the price, do the work. If you're not prepared to deliver what you are being paid for, go somewhere else. Not that complicated.

It's strange that so many poor immigrants know this but it is lost on the silver-spoon educated elite.

"My wife is a shift manager at a local McDonald's. She thinks the minimum wage is terrible. Here in Oregon we have an ill conceived law that indexed the minimum wage to inflation. She groans every year in September when the new wage is announced. It means two things. One: the prices are all going to be increased sometime in October or November to make up for it. Two: the number of people working will be cut."

Interesting; this strongly implies that the market for fast food isn't very competitive. I'd have thought differently.

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